Albanese government flags superannuation changes after review

Stephen Jones says the Albanese government wants to address ‘several unintended consequences’ of the Your Future, Your Super test following its review.

The Albanese government could extend the superannuation investment performance review period from eight to 10 years under draft changes to the Your Future, Your Super testing regime.

The Albanese government could extend the superannuation investment performance review period from eight to 10 years under draft changes to the Your Future, Your Super testing regime recommended in a report released on Tuesday.

Superfunds could also be allowed to use a broader range of benchmarks for their investment performance under proposed changes to the Your Future, Your Super investment performance comparison system, which was introduced in 2021, contained in the review.

Releasing the review, which was commissioned by the Albanese government last year, Federal Superannuation Minister Stephen Jones said the government wanted to address “several unintended consequences of the Your Future, Your Super test” which were identified in the review “while maintaining the test’s integrity”.

Mr Jones said the purpose of the review was to identify any unintended consequences of the laws “which might be leading to poor outcomes for members.”

The government has released draft regulations as a result of the review which will be open for consultation until May 2 with any updates made before the next performance test in August this year.

The proposed changes include recalibrating or “finetuning” benchmarks which were seen as “unintentionally’ discouraging super funds from investing in certain assets.

Mr Jones said the annual Your Future, Your Super performance tests were introduced in 2021 “to hold trustees to account to maximise returns to members.”

But the test, which is administered by the Australian Prudential Regulation Authority, which has the potential to stop underperforming funds from accepting new funds, has received criticism from the industry for its potential to discourage funds from investing in areas which did not meet the performance of specific benchmarks including green and ethically driven investments.

The YF, YS testing regime initially applied to the default My Super option products and has seen several smaller underperforming super funds encouraged by APRA to merge with larger funds.

It is set to be expanded to the Choice sector in July this year.

Mr Jones said the review had made other recommendations, including changes to the letter of notification super funds were required to send to their members if they failed the performance test.

In releasing its response to the review, the government has agreed to progressively extend the time frame for the testing period from the current eight years to ten years.

It believes this will help reduce short-termism in investments and can support investments in assets which may take longer to show a positive earnings performance.

The review said stakeholders generally supported the policy intent of having a performance testing regime, with several noting that it had improved outcomes for members by encouraging underperforming funds to improve or leave the industry.

It said the test had also put pressure on funds to reduce their fees.

But it warns that the current regime was encouraging super funds to “hug” the official indexes to reduce the risks of underperformance.

The government has indicated that it would like to see the benchmarks “finetuned” in time for the 2023 test, but the review has left open just how this might be done.

The review reported that the introduction of stapling of a super fund to a member had increased the administrative burden on employers as they onboarded new staff.

It also reported that it had uncovered situations where employers were seeking to avoid stapling by encouraging new employees to make an active choice of their super fund when they joined the company.

The government has indicated that the government is committed to the idea of stapling, where an employee automatically takes their old super fund with them when they move jobs, but it says it is committed to improving the administrative process.

The government has also indicated that it plans to review situations where employers directed new staff towards super funds associated with their software provider, which were seen to be undermining the stapling process.

It has warned that it would explore changes to the law to prevent this from happening.

The government has also indicated that it has no plans to change the current regime where super fund trustees are required to act in the best financial interest of their members, an issue which was also examined in the review.